Wnited States Senate WASHINGTON, DC 20510 July 11, 2016 The Honorable Edith Ramirez Chairwoman Federal Trade Commission 600 Pennsylvania Avenue, NW Washington, D.C. 20530 Dear Chairwoman Ramirez, We write to you regarding digital advertising fraud and the associated negative economic impact on consumers and advertisers. ‘The landscape of advertising in this country has changed considerably. As media consumption has expanded to an ever-larger array of platforms and sources, advertisers have been forced to rethink their marketing efforts to reach consumers across a broader media landscape. These developments have prompted tremendous innovation in online marketing. At the same time, today's media ecosystem has in some ways reduced market transparency. Internet advertising revenuies in 2015 were estimated to have totaled $59.6 billion, yet many of the purchased online advertisements are not reaching their intended audience, The infrastructure to accommodate the rise of digital advertising has grown as sophisticated as ‘our financial markets. A dense network of intermediaries has arisen in order to accommodate the growing automation of ad-buying and selling, much like stock exchanges. Within these intricate exchanges, the real-time bidding for advertising content depends heavily on the recorded consumer traffic on a given platform. Mueh like a stock, the value of an ad impression is highly contingent on measured demand. However, the problem with relying on ad “clicks” or “views” to measure that value is that recent studies have shown this data is frequently inaccurate.” According to one study, between 88 and 98 percent of all ad-clicks on major advertising platforms such as Google, Yahoo, LinkedIn, and Facebook in a given seven day period were not executed by human beings, but rather by ‘computer-automated programs commonly referred to as “botnets” or “bots.”> These programs allow hackers to seize control of multiple computers remotely, providing them access to personal information as well as the ability to remotely install malware to engage in advertising fraud, + See Sarah Sluis, IAB Report: Digital Advertising’s 810 Billion Growth Propelled By Mobile (April 21,2016, 3:20pm), han wer.convon|ine-wsertising gh: repo afigil-acscniings-10-billon-antb-propells-bs cable See Ben Elgin, Michae! Riley, David Kecieniewski, Joshua Brustein, The Fate Trafic Schemes That re Rotting the Internet (October 20,2015), fs. bloombers com features 2015- Bots plague the digital advertising space by creating fake consumer traffic, artificially driving up the cost of advertising in the same way human fraudsters can manipulate the price of a stock by creating artiticial trading volume, In each case, markets highly sensitive to demand signals are manipulated, These bots range in sophistication. While “basic” bots can only mimic human “clicks” on an advertisement, so-called “humanoid” bots can mimic human mouse touch movements with such precision that deep behavioral analysis is required to detect them. Many of these bots are advanced enough to analyze consumer web activity in order to retarget advertisements based on individual browsing preferences. ‘A comprehensive study conducted by White Ops and the Association of National Advertisers estimates that this market manipulation scheme will cost advertisers over $7.2 billion in the next year alone.’ Additionally, it is anticipated that as the budget for mobile advertising grows, so will the incidence of bot fraud in mobile advertising, which alrady accounts for 30 percent of annual digital advertising revenue.® The potential for revenue leakage is so great that our nation’s leading advertisers and platforms are already working on new systems to combat these highly evolved computer programs. In February 2014, Google bought spider.io, 2 company focused on identifying digital ad fraud? In May 2015, the Trustworthy Accountability Group (TAG), an industry group created specifically to stem advertising fraud, rolled out a “Fraud Threat List,” through which members will disclose thitd party vendors promulgating fraudulent consumer traffic.'° While these developments are significant, it remains to be seen, whether voluntary, market-based oversight is sufficient to protect consumers and advertisers from digital advertising fraud. And in the interim, consumer confidence in digital advertising markets has eroded, as evidenced by user adoption of ad blocking tools." 4 See'the Pedoral Bureau of Inve pss seh go ne ion, Bomets 101: Wha They Are and Hor to Avoid Tho (une 6, 2013, 70000) Iophaulee-l boyy fO ali ‘Become te Second Bigger Organized Crine Enirpise Behind the Drag Trade June 9, 2010) ups mdb 2916 tele juris iLsninCal Soe spea note 3, 1 See Assocation of National Advertisers, The Boy Baseline: Fret Digtat Adverising (2046), Ip yen ama ns eames. Pde See TAB and PriocwatsoussCoopes lB internet ldvertistag Revenue Report 2015 Hal Year Resets (October, 2018) bp ite: ss nb co pst ulna. 201$ 19 13 Srtenslriog espe Report HN_2035 pl O See Alex Kantroita laste Gongie' Secret War aginst Ad Frand (Moy 18.2013), hp anesson uaalemesttettfa 228082 1 See The Trustworly Accountability Group, Trusvorty deconnabiite Group (TAG) and Digital A Leaders Announce New Progran to Block Pranditoct Dara Center Traffe Oly 21, 2015) hp ago. net grandeokanngunesss (orhlokestaniuletad stort Nim Baysinge, Phe Online ladusry i Losing 38 Sition Yee ad Ad Blocking ts the Least af ts Worries (Dec. 1 2015) vena nash ne taunganding nonin en fa8380, ("The TAB considers the ‘Mloption of a blockers tobe aside effet ofthe sqread af malicious software, or malware, which costs a otal oF St. lin i lost dears”)The cost of pervasi fraud in the digital advertising space will ultimately be paid by the ‘American consumer in the form of higher prices for goods and services. Just as federal regulation has evolved to keep pace with the ever-growing sophistication of our financial markets, so must oversight of the digital advertising space. To this end, we respectfully request that the Federal Trade Commission (FTC) respond to the following questions: 1. ‘As noted above, digital advertising fraud takes many forms, including through botnets and malware. Is the FTC observing a trend that favors one particular type of advertising fraud over another? If'so, what factors are leading to the prevalence of that particular type of fraud? ‘What is the projected economic impact of this degree of data and revenue leakage amongst media owners or publishers? ‘What steps is the FTC taking to protect consumer data and mitigate fraud within the digital advertising industry? What regulatory agency currently provides oversight of mobile advertising platforms? ‘What steps can be taken to reform opaque advertising exchanges? What can be done to more closely align the incentives of ad tech companies with publishers, advertisers and consumers? To the extent that criminal organizations are involved in perpetuating digital advertising fraud, how is the FTC coordinating with both law enforcement (e.g., the Department of Homeland Security or the Federal Bureau of Investigation) and the private sector to formulate an appropriate response? Thank you for your timely attention to these issues. Sincerely, Mark R. Warner Charles E. Schumer United States Senator United States Senator